PT Berlian Laju Tanker TBK & Anor v Nuse Shipping Ltd

This is an appeal against an award of an experienced arbitral tribunal (Messrs Christopher Moss, Mark Hamsher and Alexander Kazantzis) which raises important questions of law in relation to the proper construction of a contract for the sale of a ship on the Norwegian Sale Form 1993. Mr Justice Andrew Smith granted the Buyers permission to appeal on 2^nd November 2007 on the ground that three questions were of general public importance.

The Sellers, the respondents to the appeal, are Nuse Shipping Ltd, a one-ship Maltese corporation. The Buyers under the contract are PT Berlian Laju Tanker TBK, an Indonesian corporation, which nominated Brotojoyo Maritme Pte Ltd, a Singaporean corporation, to purchase the vessel. The vessel was managed by Capital Ship Management Ltd of Piraeus.

That the dispute between the parties remained unresolved is somewhat surprising. There is no issue as to what the purchase price of the vessel was, or as to the Buyers’ willingness to pay it. What is at issue is how and where the Buyers were obliged to pay the price. In the end the dispute only related to 10% of it. The dispute arose and developed in the following way

The Buyers agreed to purchase the vessel “Aktor”, a 1986 built product tanker with a deadweight of 29,990 metric tons, then under the Maltese flag, for a total price of US $8,400,000. The agreement was made through the sale and purchase department of the London Shipbrokers, EA Gibson, who set out the terms agreed in a recap email (“the Recap”) dated 21 May 2004. The Recap was based on Gibson’s own pro forma contract which was the template used by the parties for their negotiations.

The Recap is annexed to the Award. Its important terms were as follows.

“1.

Price: USD 8,400,000 cash on delivery ……

10 pct deposit to be lodged in an interest earning joint account between Sellers and Buyers, to Sellers nominated bank in Singapore within 3 banking days after MOA …

Balance of 90 pct… to be paid on day of delivery at Sellers nominated bank against delivery documents needed by Buyers to register the vessel under her new flag and delivery of the vessel …

Place of Closing / Exchange of Documents to be Singapore.

…

3.

Vessel to be delivered charterfree at a safe port, safe berth / anchorage always safely afloat in Singapore or Indonesia in Sellers option.

…

10.

Otherwise terms as per NSF 93 suitably amended to incorporate the above.”

The deposit was paid into an account at HSBC, Singapore, the bank nominated by the Sellers.

A Memorandum of Agreement (“MOA”) was thereafter drawn up by EA Gibson and (after certain corrections) signed by the parties by 2^nd June. It is, also, annexed to the Award. It provided as follows (the underlined words being those which are not part of the NSF form):

“… the Sellers have agreed to sell, and … [the Buyers] have agreed to buy … the Vessel, on the following terms and conditions:

1.

Purchase Price US$8,400,000 CASH …

The MOA provided for a cancelling date of 16^th July 2004. On 28^th May the Sellers nominated HSBC Singapore for payment of the 10% deposit and NBG, Piraeus for payment of the balance. The deposit was paid in Singapore on 2^nd June. In late June the cancelling date was extended to 15^th September 2004, without prejudice to Buyers’ claim for late delivery (for which the arbitrators awarded them $ 481,445.50.)

The dispute about place of payment blew up in August. The Buyers said that they were required to pay the 90% balance at the Sellers’ nominated bank i.e. the Bank in Singapore nominated by the Sellers (HSBC), with the balance of 10% coming from the release of the deposit: as per clause 1 of the recap. The Sellers said they were entitled on completion to receive 90% of the price at NBG, Piraeus, the bank nominated by them under clause 3 of the MOA, and also to have the 10% made available to them there. On 26^th August the buyers agreed to pay the 90% at NBG, Piraeus.

On 30^th August the parties were in communication about the closing procedure. The Sellers made it clear to Buyers that they were prepared for the deposit to be used in part payment but they required it to be paid to the NBG, Piraeus on the same day as the 90% was paid. The Buyers maintained that all they were required to do was to sign joint instructions to HSBC Singapore to release the deposit to the Sellers in Singapore. In the evening of 30^th August Sellers indicated that if the Buyers did not accept Sellers’ current proposal (which involved payment of the 10% in Greece by production at NBG’s premises in Piraeus by an authorised officer of HSBC in Piraeus of either a letter from HSBC in Piraeus confirming same date value remittance to NBG, Piraeus or a banker’s draft in favour of NBG) by 1000 Greek time on 31^st August, Sellers would be free to consider Buyers in repudiatory breach of the MOA. That acceptance was not forthcoming and on 31^st August Sellers terminated the contract.

In the arbitration the Sellers claimed to forfeit the deposit (as the arbitrators decided they were entitled to do) and the Buyers sought its return with interest together with damages for delayed delivery, loss of the contract, and loss of profits. They also sought rectification of the MOA to make clear what they claimed to have been agreed namely that the purchase price was to be paid as to 10% by way of release of the deposit.

The Buyers’ appeal is based on three grounds. Firstly, they say that under the MOA they were not bound to pay any part of the purchase price in Greece. Secondly, if that is wrong, they say that they were only obliged to pay 90% of the purchase price in Greece, the place of payment of the remaining 10% being in Singapore. Thirdly, if both of the first two points are wrong, and the Buyers were obliged to pay 100% of the purchase price in Greece, they say that payment in Greece was not a condition of the contract but only an intermediate term, breach of which did not go to the root of the contract.

The arbitrators regarded as fully justified (see paragraph 45 of the Award) the acceptance by Counsel for the Buyers that, read in isolation, the wording of the MOA did not provide for a payment of 90% of the purchase price. Clause 1 records the purchase price; clause 2 deals with the deposit; and clause 3 deals with the obligation to pay the “said Purchase Price” i.e. the price of $ 8,400,000 specified in clause 1. The arbitrators pointed out that a deposit was conceptually fundamentally different from a payment in full or even a part payment. Under the scheme of the MOA the deposit belonged to the Buyers, who were entitled to the deposit. A deposit was, they held, an earnest of payment and not, automatically, a part payment.

The arbitrators then considered whether there was any basis for the implication of a term to achieve the result argued for by the Buyers, namely that the bank to be nominated for the receipt of the payment price on delivery under clause 3 was to be the same bank as had been nominated as the place for the deposit under clause 2 and that the 10% was payable by release of the deposit.

They ruled that there was no basis for implying any term “to alter the effect of the straightforward construction of the clear terms of the [MOA]”. In so doing they placed reliance on expert evidence from Mr Farley formerly of Watson, Farley & Williams, that in ship sale transactions the purchase price may well be paid to a bank in a completely different jurisdiction to the one agreed as the place for documentary closing, and that this may be because either the seller or the mortgagee bank have specific requirements as to where the purchase price should be paid or the mortgage redeemed.

The Buyers submitted that the arbitrators approached the question in the wrong way. They concentrated on clauses 1-3 of the MOA, without reference to clause 8, and on whether clause 3 could not be read as only applying to 90% of the purchase price. What they should have done was to construe the MOA as a whole, including clause 8, and to consider first the logically anterior question as to whether the sellers’ nominated bank under clause 3 was required to be in Singapore.

The proper construction of the MOA is that, Singapore being the place of closing and exchange, the Buyers were entitled to tender payment in Singapore, or, at least that the Sellers were not entitled to insist on payment being received in a bank in Greece during the closing meeting, as the Sellers contended. Payment of the price is, as clause 8 recognises (by the words “In exchange for payment of the Purchase Price”), as much part of closing as delivery of the delivery documents; so that, if Singapore is stipulated as the place of closing, the Buyers are entitled to pay in Singapore, or, at least, to remit from Singapore. Consistently with this, clause 3 requires that the prices should be paid to the Sellers’ nominated bank, not at that bank. If “at” is construed to mean that payment must be received at NBG, Piraeus and acknowledged by it to have been received, the effect would be that part of the closing would take place in Greece. If it is construed to mean that payment must be irrevocably remitted to NBG, Piraeus then that can be done from Singapore at the closing meeting. On this latter hypothesis, the Sellers were entitled to nominate a bank in Greece but were not entitled to insist on the money being received in Greece during the closing meeting.

The result of the arbitrators’ construction is that, although by clause 8 the place of closing and exchange of the documents was to be Singapore, the Buyers were required to make payment elsewhere, which cannot be right.

Further, as the Buyers contend, the arbitrators recorded the Buyers’ related submission that the “Sellers’ nominated bank” in clause 3 was required to be the same as the “Sellers’ nominated bank in Singapore” in clause 2, and impliedly rejected it; but they did not address it. The two banks must be the same, as is apparent from the similarity of the two phrases, the omission of “in Singapore” in clause 3 arising because the place of the nominated bank had already been identified in clause 2 and because clause 8 had the effect that the bank to be nominated under clause 3 was required to be in Singapore.

I do not accept that the arbitrators have erred in law. Under the NSF 1993 form payment, and the place where it is to be made, is governed by clause 3. In the MOA payment was to be to the Sellers’ nominated bank. Clause 8 is concerned with the delivery documentation in respect of the vessel. It specifies the place where the closing is to take place at which such documentation will be provided (Footnote: ¹). That documentation is to be furnished in exchange for payment of the purchase price. It does not, however, follow that payment of the purchase price is to be made at, or from, the place of closing. Payment is to be made in accordance with clause 3 i.e. to Seller’s nominated bank, which was NBG, Piraeus.

This is not surprising. Completion of the sale of a vessel may well involve activities in several different jurisdictions. The vessel may be physically in one jurisdiction; the documents may be delivered in another; payment may be effected in a third. Whether or not payment has occurred will depend on whether funds have been transferred by “any commercially recognised method of transferring funds the results of which is to give the transferee the unconditional right to the immediate use of the funds transferred”: The “Brimnes” [1973] 1 WLR 386, 400; [1975] 1 QB 929, 948,963; The “Chikuma” [1981] 1 Lloyd’s Rep 371, 375; and the time when payment may be regarded as made may depend on the practice of bankers current when the question arises: Afovos Shipping Co v Pagnan & F.lli [1983] 1 WLR 195,204. The contract may make particular provision as to where payment is to occur.

There is no need to hold (whether by way of construction or implication) that the Sellers’ nominated bank for payment of the purchase price under clause 3 must be the same as Sellers’ nominated bank in Singapore for payment of the deposit under clause 2. Deposit and price are two different things. Payment of the deposit does not constitute part payment: The “Selene G” [1981] 2 Lloyd’s Rep 180, 184. Goff, J, there observed that:

“The purchase money is paid, in normal circumstances, by the payment of 90 per cent of the price plus the release of the 10 per cent deposit from the deposit account on the authority of the buyers. Alternatively it could, in theory (and may sometimes in fact) be paid by payment of 100 per cent of the purchase price followed by a release of the deposit to the buyers by the sellers. But whichever way it is paid, in my judgment, the deposit of the 10 per cent of the price in no way constitutes a payment of purchase money or of part of the purchase money.”

In that case the deposit and the purchase money were both payable at the same bank. The fact, however, that that is often the case and that the deposit is often used to pay the price does not mean that the contract inevitably provides that that shall be so.

In Hall v Burnell [1911] 2 Ch 551, 558-559. Eve, J, quoted Fry, LJ, in Howe v Smith [1884] 27 Ch. D 89,101: “The terms most naturally to be implied [as to what is to become of the deposit] appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment but is then also an earnest to bind the bargain so entered into...”, and words of Cotton. LJ, to the same effect. He also observed that the mere fact that the money was placed for the time being in the hands of a third party would not alter the implied terms upon which the money is paid by the purchaser. But that was a simple contract for the sale and purchase of land with a price and a deposit paid to the vendor; not a contract dealing with payment of the deposit to a joint account in one clause and payment of the whole of the price in the other in non identical terms.

Here the MOA does not provide that the price will, as to 10%, be paid by the release of the deposit. What it does provide, by clause 3, is for payment “in full” to the Sellers’ nominated bank i.e. a bank nominated for the purposes of that clause. The inclusion of “in Singapore” in clause 2 and its omission in clause 3 is, prima facie, to be regarded as intentional rather than borne of a wish to avoid unnecessary repetition. Any implication that the parties must have intended that the two nominated banks should be the same is precluded by the fact (a) that there are sound commercial reasons why the Seller may want (i) the price to be paid somewhere other than the place of the deposit (such as at the mortgagee bank) and (ii) the ability to choose that place after the MOA has been signed, and (b) that the price is often paid to a bank in a different jurisdiction to that of the bank which receives the deposit.

The Buyers contend under this basis:

The rectification proposed to the arbitrators was that clause 3 should be rectified so as to read:

“The balance of the said Purchase Price …”

Mr Richard Southern, QC, for the Buyers, indicated that the only rectification that he sought, or needed to seek, was the first of the above, since that would make the MOA say the same as the Recap, and would mean that there was no obligation, as asserted by the Sellers, to pay any more than 90% in Greece.

The Recap specifies how the balance of 90% is to be paid (“on day of delivery at Sellers’ nominated bank”) but does not specify how the 10% is to be paid. Since, however, the Recap makes no provision for payment other than the 10% deposit and the 90% described as the “balance”, it seems to me plain that 10% of the price was to come from the release of the deposit, and only 90% was to be paid in Greece.

The parties are in dispute as to whether or not the arbitrators agreed with this construction. It appears to me from the following passages in paragraphs 35 and 36 that they did:

“35…As was emphasized by the Buyers [the Recap] made it clear that the payment for the vessel would be by way of paying 10% in the form of a deposit and 90% in the form of a balance of payment.

36.

However, although the email contract recapitulation made clear how the purchase price would be constituted in terms of the deposit and the balance payment, it did not make clear whether the “SELLERS NOMINATED BANK” to which the 90% balance of payment was to be made had to be the same bank to which the 10% deposit payment would have been made or had to be at least in the same city. Nor did it contain a provision as to how the 10% deposit was to be handled to form part of the purchase price; it did not specify how it would be released to the Sellers, although its forming part of the purchase price was implicit in the reference to “a balance of 90 per cent””.

The arbitrators did not decide how, if the Recap was the governing contract, the 10% deposit was to be made available by way of payment to the Sellers. (I should have thought that the obvious way was by the Buyers renouncing any interest in the joint account and authorising the bank to treat the account as that of the Sellers alone). But, since the effect of such release, however it occurred, would be to leave the money in the Sellers’ hands and since the parties made no further provision about what should happen to the deposit thereafter, there is no basis for any implication that the Buyers must remit the 10% to NBG, Piraeus.

The arbitrators then dealt with the Buyers’ argument in this way. First they recorded the Sellers’ contention (paragraph 28 of the Award) that the agreement recorded in the Recap was superseded by the signed MOA and that it was illegitimate to construe the MOA by reference to the Recap; and the Buyers’ contention (paragraph 29) that the Recap was a prior concluded agreement which was admissible as an aid to construction of the MOA.

They then stated (paragraph 31) that:

“In practical terms it is our experience based both on our commercial experience as well as seeing references as arbitrators that if it is the intention of the parties that, after terms have been agreed, a formal memorandum of agreement should be drawn up and signed, then that memorandum of agreement will generally be intended to record, exclusively and comprehensively, the agreement between the parties. Of course it would be a wholly different situation if the final memorandum of agreement contained a reference back to an earlier agreement but that was not the case here”.

Then in paragraph 32 they said:

“The Buyers argued that clause 10 of the email contract recapitulation which provided “OTHERWISE TERMS AS PER NSF 93 SUITABLY AMENDED TO INCORPORATE THE ABOVE” recorded that the parties had agreed that the terms of the email contract recapitulation meant that whatever the standard wording of the Norwegian Sale Form might be, it was the intention of the parties that they should be amended to record what had been agreed in the email contract recapitulation. However, it seemed to us that that wording was insufficiently explicit to overcome the presumption that the objective intention of the parties was to be bound by all the provisions of the last concluded agreement between them. That would be particularly the case where, as here, the last concluded agreement was recorded in a formal document on a standard, well known form that was signed by both parties. The Buyers were not able to rebut the legal and practical presumption that the final written memorandum of agreement was intended to record all the terms of the agreement between the parties without recourse to the email contract recapitulation”.

The arbitrators then recorded the evidence, which they accepted, of the parties’ subjective intentions. Mr Ventouris of Capital Ship Management said that the Sellers intended to receive the purchase funds at NBG, Piraeus to which the vessel was mortgaged and that this is what they thought that they had agreed. Contrariwise Ms Surya on behalf of the Buyers intended to ensure that both the 10% deposit and the 90% balance had to be paid to a bank in Singapore where BLT had an office; and understood that that was what the parties agreed.

Then, at paragraphs 41-42, the arbitrators said this:

“41 A party seeking to make out a case for rectification has to show that there had been either a concluded agreement or a continuing common intention that was not correctly recorded in the final signed contract. As we have already commented, it was clear that there was no continuing common intention between the parties. Furthermore, although there was a concluded agreement at the time when the email contract recapitulation was sent out, it was one that was superseded by the final signed contract. Even on the Buyers’ case as advanced at the hearing, the email contract recapitulation did not record what either of them thought they had agreed. That was fatal, it seemed to us, to proper reliance on that recapitulation for rectification of the memorandum of agreement. Both the practical and legal assumption is that the parties intended the final memorandum of agreement to record their final agreement. That assumption was not rebutted in this case. The agreement or the continuing common intention had to exist at the time when the final memorandum of agreement was signed. One is considering the true, subjective intention or understanding of the parties. For these purposes, even if the Buyers’ objective construction of the email contract recapitulation was correct, one could attach no more weight to it than to the subjective intention of one party or the history of negotiations; one must identify a true agreement or a common understanding running up to the signature of the final memorandum of agreement.

42.

We therefore concluded that there were no grounds for rectifying the memorandum of agreement”.

Paragraph 41 of the Award contains two separate findings, the expression of which is interlinked. The first is that rectification on the basis that there was a continuing common intention that was not correctly recorded in the final contract was not open to the Buyers because there was no common subjective intention continuing from Recap to MOA. The Recap, under which 10% was payable from the deposit, did not record what either of the parties “thought they had agreed” and that was fatal. The parties had to have a continuing common intention i.e. a “true, subjective intention or understanding” continuing up to the time of the MOA. But, at the time of the MOA the intentions of the parties differed.

The second finding is that rectification on the basis that the concluded agreement set out in the Recap was not correctly recorded in the final signed contract was not available because the Recap was superseded by the final signed contract and the practical and legal assumption was that the parties intended the MOA to record their final agreement.

The first finding is erroneous in law. Rectification on the ground of common mistake (Footnote: ²) is the means by which the court puts right the parties’ erroneous expression of an agreement that they have made. In order to determine what that agreement was, and what it means, the court examines what passed between the parties. The court is not concerned with what the parties thought they had agreed or what they thought their agreement meant – a subjective inquiry. What it is concerned with is what the parties said and did, and what that would convey to a reasonable person in their position – an objective question. The position does not change because one party seeks to rectify an allegedly inaccurate expression of the parties’ prior agreement. If that were so, it would mean that, where two parties agree “X” and intend that the document sought to be rectified should be a record of that agreement, there could be no rectification, if both parties or one of them, although agreeing “X”, thought that “X” meant something that, objectively, it does not mean.

In order for there to be rectification it is necessary that there should be a continuing common intention up to the time of the execution of the document of which rectification is sought. This is because, since the purpose of rectification is to correct an erroneous record of what has been agreed, it cannot be used to correct a record which, even if not a true record of the original agreement, is a true record of a later one. When, however, the authorities (Footnote: ³) speak of a continuing common intention - an expression which reflects the fact that rectification is often granted when no contract is made until the execution of the instrument sought to be rectified - the reference is not to the subjective intention of the parties but to the intention that they have manifested by what they have said and done.

In the present case the parties intended to agree the terms of the Recap. If, they intended to incorporate those terms into the MOA, but have failed to do so, the MOA should be rectified. It is nothing to the point whether one or both of them thought that the Recap meant something different to its objective meaning (which is to be determined by the arbitrators and the court). The mistake for which rectification provides a remedy is the belief that the document accurately records the transaction.

As Denning, LJ, put it in Frederick Rose v William Pim [1953] 2 Q.B. 450 at 461:

“Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties - into their intentions - any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice……. There is a passage in Crane v Hegeman-Harris Co Inc {[1939] 1 All E.R 662,664} which suggests that a continuing common intention alone will suffice; but I am clearly of the opinion that a continuing common intention is not sufficient unless it has found expression in outward agreement. There could be no certainty at all in business transactions if a party who had entered into a firm contract could afterwards turn round and claim to have it rectified on the grounds that the parties intended something different. He is allowed to prove, if he can, that they agreed something different ….but not that they intended something different”

Mustill, J, said much the same in his five paragraph summary of the law in The Olympic Pride [1980] 2 LL.Rep 67, citing Fowler v Fowler [1859] 4 De G & J 250, Rose v Pim and Joscelyne v Nissen [1970] 2 QB 86:

“3.

The prior transaction may consist either of a concluded agreement or of a continuing common intention. In the latter event, the intention must be objectively manifested. It is the words and acts of the parties demonstrating their common intention, not the inward thoughts of the parties that matter.

……

5.

The Court requires the mistake to be proved with a high degree of conviction ….”

It may be that, in accepting the Sellers’ submission that rectification is not available where it will not accord with the parties’ subjective intentions, the arbitrators misunderstood the point made at Chitty para 5-096, that there must be convincing proof “not only that the document to be rectified was not in accordance with the parties’ true intentions at the time of its execution, but also that the document in its proposed form does accord with their intentions.” However, none of the cases cited at Chitty footnote 357 support the Sellers’ submission that rectification is not available because each party subjectively misunderstood the meaning of the recap which they had both agreed.

In Munt v Beasley [2006] EWCA Civ 370 the Court of Appeal was concerned with a claim by a lessee (Mr Munt) to rectify a lease of the first floor of a two storey house. The first floor had a loft. The owner of the freehold (Mr Beasley) lived in the ground floor. The original lessees had assigned their lease to Mr Munt, who converted the loft into living accommodation. Mr Beasley claimed that he had no right to do so. The issue was whether the lease, which did not, as a matter of construction, cover the loft, should be rectified so as to do so.

The Recorder had had evidence from the original lessees, which he appears neither to have rejected nor dealt with, that they understood that the lease included the loft and had had discussions with Mr Beasley in which he was at one with them on the subject. He rejected the claim to rectification on the grounds that there was inadequate proof of an outward expression of accord.

Mummery, LJ, held that the reference in the sales particulars for the sale to the original lessees (compiled by Mr Beasley’s agents) to “Access into loft space” was sufficient to satisfy any legal requirement of an “outward expression of accord” to the inclusion of the loft in the first floor lease. But he also said that the Recorder was wrong to treat an “outward expression of accord” as a strict legal requirement:

“..in a case such as this, where the party resisting rectification has in fact admitted (see the solicitors letter of 7^th May 2003) that his true state of belief when he entered into the transaction was the same as that of the other party and there was therefore a continuing common intention which, by mistake, was not given effect in the relevant legal document. I agree with the trend in recent cases to treat the expression “outward expression of accord” more as an evidential factor rather than a strict legal requirement in all cases of rectification”.

He then cited five authorities:

(i)

Gallaher v Gallaher Pensions Ltd [2005] EWHC 42 (Ch), paragraphs 116-118, which relates to a voluntary settlement, where the position may not be identical to that of rectification of a contract;

(ii)

Westland Savings Bank v Hancock [1987] 2 NZLR 21, at 29-30, where the New Zealand High Court held that “while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party”;

(iii)

JLS (1974) Ltd v MCP Investment Nominees Ltd [2003] EWCA Civ 721 at paragraphs 33-34, where the Court of Appeal declined to exclude the possibility of there being some development of the strict Rose v Pim principles to cover the case where there is an obvious common assumption;

(iv)

Rose v Pim at page 462 (although what dictum is relied on is not apparent); and

(v)

Swainland Builders Ltd v Freeland Properties Ltd [2000] 2 EGLR 71 at 74 where the Court of Appeal held that “while it must be shown what was the common intention, the exact form of words in which the common intention is to be expressed is immaterial if, in substance and in detail, the common intention can be ascertained: Cooperative Insurance Society Ltd v Centremoor Ltd [1983] 2 EGLR 52, at 54.”

I do not regard Mummery, LJ’s obiter observations as indicating that rectification is dependent on a continuing common subjective intention. Where one party has admitted that he had the same belief as the other, itself something of a rarity in a contested case, the likelihood is that the parties will have communicated that belief to each other in some way. Where such an admission is made it may be justifiable to infer that they did or to take the admission as accepting that. Further the requirement for an outward expression of accord may not require an express statement of the parties’ agreement if it can be implied or is obvious from what occurred. But the basis for rectification, in a contract case, remains that

“there must be some material upon which it can be said that the instrument does not reflect what the parties agreed, not merely what they or one of them thought that it meant.”

per Hoffmann, LJ, in Britoil v Hunt, to which I refer below.

The Buyers are not entitled to rectification unless they establish that the MOA was intended by the parties to embody the provisions of the Recap as to payment of the price without alteration.

The Buyers submit that they have done do. The Recap was formally approved in writing by both parties. The arbitrators found that there was a concluded agreement at the time of the Recap in the terms of the Recap: see paragraphs 7 (last two sentences), 8 and 28 (first sentence). There was no evidence that the parties intended any variation to their agreement as set out in the Recap when they incorporated its terms into the NSF 93 form, nor did the arbitrators find that there was any intention to vary. Clause 10 of the recap (“Otherwise terms as per NSF suitably amended to incorporate the above”) was an agreement that the specified terms were to be incorporated not varied. The arbitrators started (in paragraphs 31 and 32) with a presumption that an MOA following prior agreement of terms is intended to record the agreement of the parties to the exclusion of everything else, which clause 10 was insufficiently explicit to overcome. In paragraph 41 the assumption is treated as both “practical and legal” and applied so as to conclude that there could be no continuing intention to agree the MOA in accordance with the terms of the Recap. But there is, in fact, no presumption, either practical or legal, that parties to a contract for the sale of a ship intend the MOA to be anything other than a reflection of what has been agreed in the recap. In the absence of a finding that the parties intended to change the agreement made and recorded in the Recap, the MOA, if it says something different from the Recap, should be rectified so that it says the same.

A similar problem arose in Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561, a case which was not cited to the arbitrators, and to which I directed the parties’ attention. In that case the parties to the contract had signed non-binding heads of agreement for an assignment by Hunt to Britoil of its interests in a petroleum production licence for a North Sea oil field. This was followed by a lengthy and complex legally binding “Definitive Agreement”. The contract provided for Hunt to receive a share of the profits of the field from the payout date. A dispute arose as to whether the pay out date, i.e. the date when certain expenditure plus interest was matched by certain net receipts, had ever arrived. The issue turned on whether interest was to be calculated on capital costs and expenses or only on those costs after deduction of net receipts. The majority of the Court of Appeal held that the definitive agreement provided, as a matter of construction, for the former. In that event Hunt sought to rectify the definitive agreement so as to accord with the heads of agreement, which provided for interest to be based on the “outstanding” capital at the end of each year – a provision which Saville J, at first instance and the majority of the Court of Appeal, regarded as inconclusive on the point. In this Hunt was unsuccessful. The majority consisted of Lord Justices Hobhouse and Glidewell, the judgment of the former being agreed with by the latter.

Hobhouse, LJ observed that:

“Where the prior agreement is a legally binding contract then the grant of the remedy of rectification is, as was pointed out by Lord Cozens-Hardy in Lovell & Christmas v Wall [1911] 104 LT 85 at p 88, analogous to the remedy of specific performance. The parties were entitled to have an agreement conforming to their earlier contract. If the later document fails to fulfil this entitlement, the parties are entitled to have it rectified so that it will do so. Such a conclusion will only be defeated if the parties have intended to vary their earlier agreement. In such a situation the court will have to construe the earlier agreement as a contract and as a matter of law. Having decided as a matter of law what its effect is, the court will give effect to the legal rights of the parties. This is a different situation from that which exists when there was no prior contract”.

He then went on to point out the need, in a case such as the one before the court, for convincing proof that the concluded instrument does not represent the common intention of the parties; and rejected the submission that a sentence in article 8 of the heads of agreement, an informal document not intended to have legal effect, was to be treated as a superior statement of the parties’ agreement so as to displace the clear language of the carefully drafted definitive agreement. In doing so he observed that:

“there must be a reality to the allegation of common mistake. It is a factual allegation, not a question of law. On the defendants’ argument before us no actual common mistake is required. The parties are to be treated as if they were bound by the objective interpretation of the, ex hypothesi, non-binding heads of agreement. Where the relevant document is a legally binding document it is appropriate and just to hold the parties to the objectively ascertained meaning of the words used. But where they are not bound and where the court is only looking at the previous document to help it answer the factual question whether or not there has been a mistake in the preparation ofthe legal document, the matter becomes one of fact not law. The claimant must prove the mistake and he must prove that it is a common mistake. The answering of that factual question is assisted by considering what is the natural meaning of words used in an earlier document – people normally mean what they say – but strictly it cannot be concluded by it. It cannot be right to treat as conclusive evidence of the existence of a mistake in the execution of a carefully prepared and clearly expressed later contract the fact that language has been used in an earlier document which is bona fide capable of being understood in more than one way”.

Hobhouse, LJ held that the trial judge has been right to hold that Hunt had failed to establish that there had been a common mistake.

Hoffman LJ held that the definitive agreement should be interpreted as referring to interest on capital costs and expenses after the deduction of net receipts. If he was wrong on that, he held that Hunt was entitled to have the definitive agreement rectified so as to accord with the heads of agreement, which he regarded as signifying that Britoil should only be credited with interest on capital which had not yet been recovered. Hunt was entitled to rectification because the definitive agreement was intended to carry into effect unchanged the principles applied in the heads of agreement. There was nothing to show that the heads of agreement, properly construed, did not represent the true agreement of the parties. There was, on the evidence, no further negotiation or discussion between the parties of the question now in issue and the common intention was that the definitive agreement should reflect the meaning of the heads of agreement whatever that might be.

In the course of his judgment Hoffman, LJ observed, rejecting a submission that rectification should be refused because Britoil intended the definitive agreement to mean exactly what they said it meant and thought that the heads of agreement meant the same:

“In my view it does not matter what Britoil thought that the heads of agreement and the definitive agreement meant. What matters is what the parties agreed. The purpose of rectification of a contract ... is not to make the instrument accord with what the parties subjectively intended but with what they actually agreed. Agreement in English law does not require a meeting of minds, a consensus ad idem. It is an objective fact, requiring only the appearance of such a consensus. If therefore the parties both intended a written instrument to embody their agreement and it does not do so, the necessary common mistake exists. It does not require that the written instrument should actually mean something different from what each of the parties thought it meant.

There is ample authority for the reverse proposition, namely that rectification will not be granted merely because the effect of the instrument is different from that which both parties subjectively intended. For example … [Rose v Pim]

In Joscelyne v Nissen [1970] 2 QB 86,98 Russell, LJ said that rectification required “some outward expression” of the earlier accord with which the instrument does not conform. This has given rise to some doubt in the literature and in Australia …In my judgment, however, Russell LJ did not mean that the term in question needed to have been expressly mentioned. It can have been implied. But there must be some material upon which it can be said that the instrument does not reflect what the parties agreed, not merely what they or one of them thought that it meant.

In my judgment the converse is also true. A subjective mistake as to what the contract means is unnecessary as well as insufficient.”

The observations of both Hobhouse and Hoffmann LJJ in the Court of Appeal are further confirmation of the error of the arbitrators’ first ground for declining rectification.

It is apparent from both judgments that, where parties have entered into a contract and that is followed by a further agreement, which is intended to reflect and not to vary the earlier agreement, a party will be entitled to rectify the later agreement, if, on its true construction it fails to carry the earlier agreement into effect. Moreover the Court is markedly more likely to hold that there has been a mistake in such a case than it would be if a non-binding agreement is followed, after considerable negotiation, by a definitive binding one. Indeed such an entitlement will only be defeated if the parties have intended to vary their earlier agreement.

In the present case it was for the Buyers to establish their entitlement to rectification and to do so convincingly. They were, however, at least half way there in that it was common ground that the Recap was a contract. Moreover, the meaning of the Recap “is not a matter of proof. It is a question of construction”: per Hoffmann, LJ in Britoil. The MOA does not bear the same meaning as the Recap. Accordingly the Buyers would be entitled to rectification if there was no intention on the part of the parties to vary the agreement. Since the onus of proof lies on the Buyers I am prepared to accept that it was for them to establish that there was no intention to change. In practical terms that may be a light burden if, on the facts, no one suggested that there was any change involved.

But the arbitrators have held that, although there was a concluded agreement when the Recap was sent out, that agreement was superseded by the final signed contract i.e. the MOA, which was intended to record their final agreement: paragraph 41 of the Award. By that I take them to mean that the MOA was intended to be a complete replacement for the Recap, to the exclusion of whatever had gone before, and so that the agreement between the parties was to be found within, and only within, the MOA. That that is what they meant is apparent from their reference in paragraph 31 of the Award to their experience that, where a formal MOA is drawn up after terms have been agreed, the parties’ intention is generally to record “exclusively and comprehensively” the agreement between the parties, and in paragraph 41 to the fact that that assumption was not rebutted in this case. As Rix, LJ put it in HIH v New Hampshire [2001] Lloyd’s Rep I & R 596, 619:

“Where ....one contract has been intended to supersede an earlier contract, it must follow that the parties’ contract must be found exclusively in the later contract. Thus the earlier contract cannot be used to add to, or modify the later contract”.

In the light of that finding of fact, rectification is not available to the Buyers. The parties, on the arbitrators’ findings, intended to agree what was in the MOA, even if it differed from what was in the Recap. The court’s jurisdiction is to determine questions of law arising out of the Award. It is irrelevant whether the court considers the arbitrators’ finding, which was based on their view, in the light of their experience of trade practice, that a later formal signed document should be regarded as a superior expression of the parties’ agreement than a recap telex, was right or wrong (Footnote: ⁴). Further, the courts have shown themselves resolutely resistant to attempts at challenges to factual conclusions dressed up as points of law: The “Baleares” [1993] I Lloyd’s Rep 215,228.

The Buyers contend that the arbitrators have erred in law in deciding that there was a rebuttable presumption that the MOA superseded the Recap, and then deciding that it had not been rebutted or overcome (paragraphs 31 and 41 of the Award). This is, in my judgment, a challenge to the arbitrators’ factual conclusions veiled in the diaphanous guise of a point of law. The arbitrators’ so called presumption was avowedly expressed “in practical [i.e. factual] terms” and on the basis of their (considerable) commercial and arbitral experience, of which the parties no doubt wished to avail themselves when choosing arbitration in the first place.

The Buyers also contend that the manner in which the arbitrators’ decision on intercession is interwoven with their erroneous views on the relevance of subjective intention in paragraph 41 of the Award means that the former is vitiated by the latter. In my judgment, however, they have made a finding of fact by which the parties, and the court, are bound.

The fact that the MOA was intended to supersede the Recap also means that the Recap is unlikely to be a valuable aid to construction of the MOA. A prior contract is admissible evidence for the purpose of construing a later version, if the later version is ambiguous. But, even if the MOA is to be regarded as ambiguous, which I do not accept, the construction of the MOA is unlikely to be assisted by its predecessor since:

“..where the later contract is intended to supersede the prior contract, it may in the generality of cases simply be useless to try to construe the later contract by reference to the earlier one. Ex hypothesi, the later contract replaces the earlier one and it is likely to be impossible to say that the parties have not wished to alter the terms of their earlier bargain. The earlier contract is unlikely therefore to be of much, if any assistance…Where the later contract differs from the earlier contract, prima facie the difference is a deliberate decision to depart from the earlier wording, which again provides no assistance...”

See HIH v New Hampshire [2001] Lloyd’s Rep I&R 596, 619. at para 83 per Rix, LJ.

The Buyers’ third ground of appeal is that, even if they are wrong on the first two points, nevertheless the obligation to make payment in full at NBG, Piraeus was not a condition of the contract and the arbitrators erred in law in finding that it was. The Buyers’ obligations in respect of the price covered a number of matters: what the price was, when it should be paid, how it should be paid, and where it should be paid. Some breaches of those obligations, such as a refusal to pay the full amount would entitle the Sellers to terminate. Others would not. Here there was no question of the Buyers not paying in full, or not paying when the vessel was ready for delivery. The only issue was as to where the 10% should be paid. The obligation to pay 10% at NBG, Piraeus, if that was what the Buyers were bound to do, is an innominate term. If the Buyers were wrong in saying that they were entitled to pay by releasing the deposit in Singapore, the Sellers would be entitled to recover any proved loss resulting from the 10% payment being made there and not at NBG, Piraeus. But they would not be entitled to throw up the whole contract.

I do not accept this. In Bunge Corp v Tradax Export S.A. [1981] 1 WLR 711 Lord Roskill accepted that in a mercantile contract where a term has to be performed by one party as a condition precedent to the ability of the other party to perform another term, especially an essential term such as the nomination of a single loading port, the term as to time of performance of the former obligation would in general be treated as a condition. One of the reasons for this is the need for certainty in mercantile contracts; and the need for the parties to know where they stand at the time rather than wait upon events before their rights can be determined. In the present case payment of the purchase price and delivery of the vessel were concurrent conditions. That alone seems to me sufficient to render the obligation to tender payment in accordance with the provisions of the contract which specify how payment is to be made as a condition. Such a conclusion is supported by a consideration of the nature of payment.

Payment under a contract cannot be made without the consent of the creditor. Even if payment is to be in cash, i.e. legal tender, the creditor may not necessarily accept it. If payment is made through the banking system, a bank may have authority to receive payment; but it will not be able to accept payment in discharge of the debt without the authority of the creditor: see Mann The Legal Aspect of Money 6^th edition 2005 paragraphs 7.08; 7.12; and 7.19 (d); TSB Bank of Scotland PLC v Welwyn Hatfield District Council [1993] 2 Bank LR 262; and Commissioners of Customs & Excise v National Westminster Bank PLC [2002] EWHC 2204 (QB). Such authority may be given in the contract itself. But without it there is no payment. A transfer of funds to a bank account of the creditor (or a release of funds to such an account), which is not the account stipulated in the contract, is no payment. Nor is it even a valid tender of payment. In the absence of a valid tender of payment the Sellers would be under no obligation to deliver the vessel since the Buyers would not have complied with the condition of its delivery.

The parties cannot have contemplated that the Sellers would be bound to make delivery of a valuable vessel without payment in full of the purchase price in accordance with the terms of the contract. Crediting the Sellers with some or all of the purchase price otherwise than at the place stipulated for payment would be likely to prevent redemption at the time of payment and out of the payment of any mortgage on the vessel, as would ordinarily be expected; and would expose the Sellers to the risk involved in transferring the monies from the non-contractual place, where or from which the Buyers purported to make payment, to the place agreed. Monies that pass through the banking system may become unavailable to the payee because of claims to the money, or claims to freeze the money, by banks or others.

A defective tender may be cured by a subsequent tender made no later than the last day for performance. But, if the Buyers indicate a settled intention only to make an invalid tender i.e. to perform in a manner inconsistent with a condition of the contract, which, if persisted in, would entitle the Sellers to terminate, the Buyers are entitled to anticipate the breach and treat themselves as discharged. That was the case here. Clause 13 itself makes plain that the Sellers have a right to terminate for non payment of the price “in accordance with clause 3”.

The arbitrators decided that paying 10% of the price by the release of the deposit in Singapore could not be said to satisfy the obligation that the purchase price “be paid in full free of bank charges to Sellers nominated bank” (paragraph 63); that payment of 10% of the purchase price somewhere other than at the contractual place meant that the contractual obligation [to make payment] had not been satisfied; that the obligations contained in clause 3 of the MOA were indivisible; that the place of payment could not be viewed in isolation but was an important part of a complete set of payment obligations (paragraph 64); that the obligation to pay 100% of the purchase price at the Buyers’ nominated bank in Piraeus was a condition of the contract; and that paying 10% of that price by releasing the deposit in Singapore would constitute a breach of that condition (paragraph 65). I agree. In short, the Buyers’ obligation was to make payment in accordance with the contract. This they indicated that they were not prepared to do.

Accordingly I propose to dismiss the appeal.